----

| (Mark      One) |                                                   |   |
|-----------------|--------------------------------------------------------|--------|
| x               | QUARTERLY      REPORT PURSUANT TO SECTION 13 OR 15(d)  |   |
|            | OF      THE SECURITIES EXCHANGE ACT OF 1934            |   |
|            | For      the quarterly period ended September 30, 2009 |   |

|  ̈ | TRANSITION      REPORT PURSUANT TO SECTION 13 OR 15(d)                                                                                                                                                                            |   |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   | OF      THE SECURITIES EXCHANGE ACT OF 1934                                                                                                                                                                                       |   |
|   | For      the transition period from                      to                 |   |
|   | Commission      File Number 001-10924                                                                                                                                                                                             |   |

| CLAYTON      WILLIAMS ENERGY, INC.                         |
|------------------------------------------------------------|
| (Exact      name of registrant as specified in itscharter) |

| Delaware                                                            |   | 75-2396863                                |
|---------------------------------------------------------------------|--------|-------------------------------------------|
| (State      or other jurisdiction of incorporation or organization) |   | (I.R.S.      Employer Identification No.) |
| Six      Desta Drive - Suite 6500                                   |   |                                      |
| Midland,      Texas                                                 |   | 79705-5510                                |
| (Address      of principal executive offices)                       |   | (Zip      code)                           |
| Registrant’s      telephone number, including area code:      |   | (432)      682-6324                       |

| Indicate      by check mark whether the registrant (1) has filed all reports required to      be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934      during the preceding 12 months (or for such shorter period that the      registrant was required to file such reports), and (2) has been subject to      such filing requirements for the past 90 days. |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                              | x    Yes |   |  ̈No |   |

| Indicate      by check mark whether the registrant has submitted electronically and      posted on its corporate Web site, if any, every Interactive Data File      required to be submitted and posted pursuant to Rule 405 of Regulation S-T      (§232.405 of this chapter) during the preceding 12 months (or for such      shorter period that the registrant was required to submit and post such      files). |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                      |  ̈    Yes |   |  ̈No |   |

| Indicate      by check mark whether the registrant is a large accelerated filer, an      accelerated filer, a non-accelerated filer, or a smaller reporting      company.  See definitions of “large accelerated filer,”      “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the      Exchange Act. |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                    |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                    | Large      accelerated filer   ̈ |   | Accelerated      filer  x |   |
|                                                                                                                                                                                                                                                                                                                                                                    | Non-accelerated      filer   ̈ |   | Smaller      reporting company  ̈ |   |

| Indicate      by check mark whether the registrant is a shell company (as defined in      Rule 12b-2 of the Exchange Act). |
|----------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                       |  ̈    Yes |   | xNo |   |

| There      were 12,143,536 shares of Common Stock, $.10 par value, of the registrant      outstanding as of November 4,2009. |
|-----------------------------------------------------------------------------------------------------------------------------------|

----

| PART      I.  FINANCIAL INFORMATION |
|-----------------------------------------------|
|                                          |   | Page |
|                                          |   |   |   |
| Item 1.                                       | Financial Statements |   |   |
|                                          |   |   |   |
|                                          | Consolidated Balance Sheets as of September 30,      2009 |   |   |
|                                          | and December 31,      2008                                                                                                 | 3 |   |
|                                          |   |   |   |
|                                          | Consolidated Statements of Operations for the three months and      nine months |   |   |
|                                          | ended September 30, 2009 and      2008                                                                                                 | 5 |   |
|                                          |   |   |   |
|                                          | Consolidated Statement of Equity for the nine      months |   |   |
|                                          | ended September 30,      2009                                                                                                 | 6 |   |
|                                          |   |   |   |
|                                          | Consolidated Statements of Cash Flows for the nine      months |   |   |
|                                          | ended September 30, 2009 and      2008                                                                                                 | 7 |   |
|                                          |   |   |   |
|                                          | Notes to Consolidated Financial Statements | 8 |   |
|                                          |   |   |   |
| Item2.                                        | Management’s Discussion and      Analysis of Financial |   |   |
|                                          | Condition and Results of      Operations                                                                                                 | 25 |   |
|                                          |   |   |   |
| Item3.                                        | Quantitative and Qualitative      Disclosures About Market Risks | 42 |   |
|                                          |   |   |   |
| Item4.                                        | Controls and      Procedures | 44 |   |
|                                          |   |   |   |
|                                          |   |   |   |
| PART      II.  OTHER INFORMATION    |
| Item    1A.                                   | Risk      Factors | 45 |   |
|                                          |   |   |   |
| Item6.                                        | Exhibits | 47 |   |
|                                          |   |   |   |
|                                          | Signatures | 48 |   |

----

Item 

WILLIAMS 

| ASSETS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | September      30, |   |   | December      31, |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | 2009 |   |   | 2008 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | (Unaudited) |   |   |   |   |
| CURRENT      ASSETS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |   |   |   |   |   |
| Cash and cash      equivalents                                                                                                                   |   | $ | 22,407 |   |   | $ | 41,199 |   |
| Accounts      receivable:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |
| Oil and gas      sales                                                                                                                                                    |   |   | 21,986 |   |   |   | 26,009 |   |
| Joint interest and other,      net                                                                                                                                        |   |   | 5,533 |   |   |   | 14,349 |   |
| Affiliates                                                                                                                                                                |   |   | 289 |   |   |   | 227 |   |
| Inventory                                                                                                                                        |   |   | 41,918 |   |   |   | 20,052 |   |
| Deferred income      taxes                                                                                                                       |   |   | 3,637 |   |   |   | 3,637 |   |
| Assets held for      sale                                                                                                                        |   |   | 18,750 |   |   |   | - |   |
| Prepaids and      other                                                                                                                          |   |   | 1,796 |   |   |   | 20,011 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   | 116,316 |   |   |   | 125,484 |   |
| PROPERTY      AND EQUIPMENT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |   |
| Oil and gas properties,      successful efforts      method                                                                                      |   |   | 1,570,175 |   |   |   | 1,526,473 |   |
| Natural gas gathering and      processing      systems                                                                                           |   |   | 17,884 |   |   |   | 17,816 |   |
| Contract drilling      equipment                                                                                                                 |   |   | 27,800 |   |   |   | 91,151 |   |
| Other                                                                                                                                            |   |   | 16,047 |   |   |   | 14,954 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   | 1,631,906 |   |   |   | 1,650,394 |   |
| Less accumulated depreciation,      depletion and amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   | (920,687 | ) |   |   | (840,366 | ) |
| Property and equipment,      net                                                                                                                                          |   |   | 711,219 |   |   |   | 810,028 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   |   |   |   |   |   |   |
| OTHER      ASSETS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |   |   |   |   |   |   |
| Debt issue costs,      net                                                                                                                       |   |   | 5,188 |   |   |   | 6,225 |   |
| Other                                                                                                                                            |   |   | 1,920 |   |   |   | 1,672 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   | 7,108 |   |   |   | 7,897 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | $ | 834,643 |   |   | $ | 943,409 |   |

----

| LIABILITIES      AND EQUITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | September      30, |   |   | December      31, |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | 2009 |   |   | 2008 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | (Unaudited) |   |   |   |   |
| CURRENT      LIABILITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   |   |
| Accounts    payable:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |   |   |   |   |
| Trade                                                                                                                                                        |   | $ | 32,653 |   |   | $ | 67,189 |   |
| Oil and gas      sales                                                                                                                                       |   |   | 17,721 |   |   |   | 24,702 |   |
| Affiliates                                                                                                                                                   |   |   | 1,738 |   |   |   | 1,627 |   |
| Current maturities of      long-term      debt                                                                                      |   |   | - |   |   |   | 18,750 |   |
| Fair value of      derivatives                                                                                                      |   |   | 8,049 |   |   |   | - |   |
| Accrued liabilities and      other                                                                                                  |   |   | 7,699 |   |   |   | 10,609 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   | 67,860 |   |   |   | 122,877 |   |
| NON-CURRENT      LIABILITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |
| Long-term      debt                                                                                                                 |   |   | 395,000 |   |   |   | 347,225 |   |
| Deferred income      taxes                                                                                                          |   |   | 78,382 |   |   |   | 120,414 |   |
| Fair value of      derivatives                                                                                                      |   |   | 265 |   |   |   | - |   |
| Other                                                                                                                               |   |   | 37,993 |   |   |   | 32,617 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   | 511,640 |   |   |   | 500,256 |   |
| COMMITMENTS      AND CONTINGENCIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |   |   |
| EQUITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |   |   |   |   |   |   |   |
| Preferred stock, par value      $.10 per share, authorized – 3,000,000                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |
|  shares; none      issued                                                                                                      |   |   | - |   |   |   | - |   |
| Common stock, par value $.10      per share, authorized – 30,000,000                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |   |   |   |   |
|  shares; issued and      outstanding – 12,143,536 shares in 2009                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   |   |   |   |   |   |   |
|  and 12,115,898 shares in      2008                                                                                            |   |   | 1,214 |   |   |   | 1,212 |   |
| Additional paid-in      capital                                                                                                     |   |   | 152,028 |   |   |   | 137,046 |   |
| Retained      earnings                                                                                                              |   |   | 101,901 |   |   |   | 176,424 |   |
| Total Clayton Williams Energy,      Inc. stockholders’ equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |   | 255,143 |   |   |   | 314,682 |   |
| Noncontrolling interest, net      of      tax                                                                                       |   |   | - |   |   |   | 5,594 |   |
| Total      equity                                                                                                                                            |   |   | 255,143 |   |   |   | 320,276 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | $ | 834,643 |   |   | $ | 943,409 |   |

----

CLAYTON 

|                                                                                                                                                                                                                                                                                                                                                                                                          |   | Three      Months Ended |    |   | Nine      Months Ended |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|---------|--------|------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                          |   | September      30,      |    |   | September      30,     |   |
|                                                                                                                                                                                                                                                                                                                                                                                                          |   | 2009                    |    |   | 2008                   |   |   | 2009 |   |   | 2008 |   |
| REVENUES                                                                                                                                                                                                                                                                                                                                                                                                      |   |                    |    |   |                   |   |   |   |   |   |   |   |
| Oil and gas      sales                                                                                                          |   | $                       | 59,436  |   |                   | $      | 128,335 |   |   | $ | 167,438 |   |   | $ | 381,545 |   |
| Natural gas      services                                                                                                       |   |                    | 1,639   |   |                   |   | 2,978 |   |   |   | 4,578 |   |   |   | 9,069 |   |
| Drilling rig      services                                                                                                      |   |                    | -       |   |                   |   | 12,515 |   |   |   | 6,681 |   |   |   | 40,050 |   |
| Gain on sales of      assets                                                                                                    |   |                    | 1,351   |   |                   |   | 3,157 |   |   |   | 2,014 |   |   |   | 44,447 |   |
| Total      revenues                                                                                                                                           |   |                    | 62,426  |   |                   |   | 146,985 |   |   |   | 180,711 |   |   |   | 475,111 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                          |   |                    |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| COSTS      AND EXPENSES                                                                                                                                                                                                                                                                                                                                                                                       |   |                    |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Production                                                                                                                      |   |                    | 19,258  |   |                   |   | 22,861 |   |   |   | 56,617 |   |   |   | 65,365 |   |
| Exploration:                                                                                                                                                                                                                                                                                                                                                                                                  |   |                    |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Abandonments and      impairments                                                                                                                                                                                                                                                                                                                                                                             |   |                    | 24,149  |   |                   |   | 43,036 |   |   |   | 41,066 |   |   |   | 45,266 |   |
| Seismic and      other                                                                                                                                        |   |                    | 898     |   |                   |   | 5,993 |   |   |   | 6,556 |   |   |   | 11,230 |   |
| Natural gas      services                                                                                                       |   |                    | 1,344   |   |                   |   | 2,706 |   |   |   | 3,966 |   |   |   | 8,465 |   |
| Drilling rig      services                                                                                                      |   |                    | 904     |   |                   |   | 9,763 |   |   |   | 10,901 |   |   |   | 30,803 |   |
| Depreciation, depletion and      amortization                                                                                                                                                                                                                                                                                                                                                                 |   |                    | 30,053  |   |                   |   | 27,226 |   |   |   | 92,704 |   |   |   | 82,473 |   |
| Impairment of property and      equipment                                                                                                                                                                                                                                                                                                                                                                     |   |                    | -       |   |                   |   | 9,985 |   |   |   | 32,068 |   |   |   | 9,985 |   |
| Accretion of abandonment      obligations                                                                                                                                                                                                                                                                                                                                                                     |   |                    | 824     |   |                   |   | 654 |   |   |   | 2,290 |   |   |   | 1,669 |   |
| General and      administrative                                                                                                 |   |                    | 4,012   |   |                   |   | 6,501 |   |   |   | 14,796 |   |   |   | 17,893 |   |
| Loss on sales of assets and      inventory                                                                                                                                                                                                                                                                                                                                                                    |   |                    |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| write-downs                                                                                                                                    |   |                    | 555     |   |                   |   | 134 |   |   |   | 4,400 |   |   |   | 420 |   |
| Total costs and      expenses                                                                                                                                 |   |                    | 81,997  |   |                   |   | 128,859 |   |   |   | 265,364 |   |   |   | 273,569 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                          |   |                    |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Operating income      (loss)                                                                                                                                  |   |                    | (19,571 | )      |                   |   | 18,126 |   |   |   | (84,653 | ) |   |   | 201,542 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                          |   |                    |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| OTHER      INCOME (EXPENSE)                                                                                                                                                                                                                                                                                                                                                                                   |   |                    |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Interest      expense                                                                                                           |   |                    | (6,526  | )      |                   |   | (5,406 | ) |   |   | (17,700 | ) |   |   | (18,929 | ) |
| Gain (loss) on      derivatives                                                                                                 |   |                    | 4,723   |   |                   |   | 132,710 |   |   |   | (14,537 | ) |   |   | (61,986 | ) |
| Other                                                                                                                           |   |                    | (76     | )      |                   |   | 2,030 |   |   |   | 1,651 |   |   |   | 5,699 |   |
| Total other income      (expense)                                                                                                                             |   |                    | (1,879  | )      |                   |   | 129,334 |   |   |   | (30,586 | ) |   |   | (75,216 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                          |   |                    |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Income      (loss) before income      taxes                                                            |   |                    | (21,450 | )      |                   |   | 147,460 |   |   |   | (115,239 | ) |   |   | 126,326 |   |
| Income      tax (expense)      benefit                                                                 |   |                    | 7,850   |   |                   |   | (52,829 | ) |   |   | 42,171 |   |   |   | (45,409 | ) |
| NET      INCOME      (LOSS)                                                                            |   |                    | (13,600 | )      |                   |   | 94,631 |   |   |   | (73,068 | ) |   |   | 80,917 |   |
| Less income attributable      to                                                                                                                                                                                                                                                                                                                                                                              |   |                    |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| noncontrolling interest, net of      tax                                                                                                                                                                                                                                                                                                                                                                      |   |                    | -       |   |                   |   | (2 | ) |   |   | (1,455 | ) |   |   | (280 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                          |   |                    |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| NET      INCOME (LOSS) attributable to Clayton                                                                                                                                                                                                                                                                                                                                                                |   |                    |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Williams Energy,      Inc.                                                                                                      |   | $                       | (13,600 | )      |                   | $      | 94,629 |   |   | $ | (74,523 | ) |   | $ | 80,637 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                          |   |                    |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income (loss) per common share attributable to                                                                                                                                                                                                                                                                                                                                                       |   |                    |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Clayton Williams Energy, Inc.      stockholders:                                                                                                                                                                                                                                                                                                                                                              |   |                    |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                                           |   | $                       | (1.12   | )      |                   | $      | 7.81 |   |   | $ | (6.14 | ) |   | $ | 6.79 |   |
| Diluted                                                                                                                         |   | $                       | (1.12   | )      |                   | $      | 7.79 |   |   | $ | (6.14 | ) |   | $ | 6.72 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                          |   |                    |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted      average common shares outstanding:                                                                                                                                                                                                                                                                                                                                                              |   |                    |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                                           |   |                    | 12,144  |   |                   |   | 12,114 |   |   |   | 12,136 |   |   |   | 11,874 |   |
| Diluted                                                                                                                         |   |                    | 12,144  |   |                   |   | 12,141 |   |   |   | 12,136 |   |   |   | 12,008 |   |

----

CLAYTON 

|                               |   | Clayton      Williams Energy, Inc. Stockholders’ Equity |   |   |       |   |
|------------------------------------|--------|---------------------------------------------------------------|--------|--------|------------|--------|
|                               |   | Common      Stock                                             |   |   | Additional |   |   |   |   |   |   |   |
|                               |   | No.      of                                                   |   |   | Par        |   |   | Paid-In |   |   | Retained |   |   | Noncontrolling |   |
|                               |   | Shares                                                        |   |   | Value      |   |   | Capital |   |   | Earnings |   |   | Interest |   |
| BALANCE,                           |   |                                                          |   |   |       |   |   |   |   |   |   |   |   |   |   |
| December 31, 2008                  |   |                                                          | 12,116 |   |       | $      | 1,212 |   |   | $ | 137,046 |   |   | $ | 176,424 |   |   | $ | 5,594 |   |
| Net income (loss)                  |   |                                                          | -      |   |       |   | - |   |   |   | - |   |   |   | (74,523 | ) |   |   | 1,455 |   |
| Stock options exercised            |   |                                                          | 28     |   |       |   | 2 |   |   |   | 150 |   |   |   | - |   |   |   | - |   |
| Acquisition of      noncontrolling |   |                                                          |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| interest                           |   |                                                          | -      |   |       |   | - |   |   |   | 14,832 |   |   |   | - |   |   |   | (7,049 | ) |
| BALANCE,                           |   |                                                          |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| September 30, 2009                 |   |                                                          | 12,144 |   |       | $      | 1,214 |   |   | $ | 152,028 |   |   | $ | 101,901 |   |   | $ | - |   |

----

CLAYTON 

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | Nine      Months Ended |     |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|----------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | September      30,     |     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | 2009                   |     |   | 2008 |   |
| CASH      FLOWS FROM OPERATING ACTIVITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                   |     |   |   |   |
| Net income      (loss)                                                                                                                              |   | $                      | (73,068  | ) |   | $ | 80,917 |   |
| Adjustments to reconcile net      income (loss) to cash                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                   |     |   |   |   |   |   |
| provided by operating      activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                   |     |   |   |   |   |   |
| Depreciation, depletion and      amortization                                                                                                                                     |   |                   | 92,704   |   |   |   | 82,473 |   |
| Impairment of property and      equipment                                                                                                                                         |   |                   | 32,068   |   |   |   | 9,985 |   |
| Exploration      costs                                                                                                                                                            |   |                   | 41,066   |   |   |   | 45,266 |   |
| (Gain) loss on sales of assets      and inventory write-downs, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                   | 2,386    |   |   |   | (44,027 | ) |
| Deferred income tax expense      (benefit)                                                                                                                                        |   |                   | (42,171  | ) |   |   | 44,881 |   |
| Non-cash employee      compensation                                                                                                                                               |   |                   | 953      |   |   |   | 3,942 |   |
| Unrealized (gain) loss on      derivatives                                                                                                                                        |   |                   | 8,314    |   |   |   | (23,930 | ) |
| Settlements on derivatives with      financing      elements                                                                                                                      |   |                   | -        |   |   |   | 40,260 |   |
| Amortization of debt issue      costs                                                                                                                                             |   |                   | 1,163    |   |   |   | 1,049 |   |
| Accretion of abandonment      obligations                                                                                                                                         |   |                   | 2,290    |   |   |   | 1,669 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                   |     |   |   |   |   |   |
| Changes in operating working      capital:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                   |     |   |   |   |   |   |
| Accounts      receivable                                                                                                                                                          |   |                   | 12,777   |   |   |   | (5,001 | ) |
| Accounts      payable                                                                                                                                                             |   |                   | (26,075  | ) |   |   | (10,374 | ) |
| Other                                                                                                                                                                             |   |                   | 15,800   |   |   |   | (4,054 | ) |
| Net cash provided by operating      activities                                                                                                                                                                  |   |                   | 68,207   |   |   |   | 223,056 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                   |     |   |   |   |   |   |
| CASH      FLOWS FROM INVESTING ACTIVITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                   |     |   |   |   |   |   |
| Additions to property and      equipment                                                                                                            |   |                   | (99,808  | ) |   |   | (231,316 | ) |
| Proceeds from sales of      assets                                                                                                                  |   |                   | 2,109    |   |   |   | 117,109 |   |
| Change in equipment      inventory                                                                                                                  |   |                   | (25,868  | ) |   |   | (11,384 | ) |
| Other                                                                                                                                               |   |                   | (109     | ) |   |   | 3,880 |   |
| Net cash used in investing      activities                                                                                                                                                                      |   |                   | (123,676 | ) |   |   | (121,711 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                   |     |   |   |   |   |   |
| CASH      FLOWS FROM FINANCING ACTIVITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                   |     |   |   |   |   |   |
| Proceeds from long-term      debt                                                                                                                   |   |                   | 75,900   |   |   |   | 5,500 |   |
| Repayments of long-term      debt                                                                                                                   |   |                   | (39,375  | ) |   |   | (60,312 | ) |
| Proceeds from exercise of stock      options                                                                                                        |   |                   | 152      |   |   |   | 15,915 |   |
| Settlements on derivatives with      financing      elements                                                                                        |   |                   | -        |   |   |   | (40,260 | ) |
| Net cash provided by (used in)      financing activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                   | 36,677   |   |   |   | (79,157 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                   |     |   |   |   |   |   |
| NET      INCREASE (DECREASE) IN CASH AND                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                   |     |   |   |   |   |   |
| CASH      EQUIVALENTS                                                                                                                     |   |                   | (18,792  | ) |   |   | 22,188 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                   |     |   |   |   |   |   |
| CASH      AND CASH EQUIVALENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                   |     |   |   |   |   |   |
| Beginning of      period                                                                                                                            |   |                   | 41,199   |   |   |   | 12,344 |   |
| End of      period                                                                                                                                  |   | $                      | 22,407   |   |   | $ | 34,532 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                   |     |   |   |   |   |   |
| SUPPLEMENTAL      DISCLOSURES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                   |     |   |   |   |   |   |
| Cash paid for interest, net of      amounts      capitalized                                                                                        |   | $                      | 21,826   |   |   | $ | 22,239 |   |

----

CLAYTON 

| 1. | Nature      of Operations |
|----|---------------------------|

| 2. | Presentation |
|----|--------------|

----

----

| 3. | Recent      Accounting Pronouncements |
|----|---------------------------------------|

| 4. | Long-Term      Debt |
|----|---------------------|

|                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | September      30,  |    |   | December      31, |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|---------|--------|-------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | 2009                |    |   | 2008              |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | (In      thousands) |    |
| 73⁄4% Senior Notes due      2013                                                                            |   | $                   | 225,000 |   |              | $      | 225,000 |   |
| Secured bank credit facility,      due May 2012(a)                                                                                                                                                                                                                                                                                                                                                                                                  |   |                | 170,000 |   |              |   | 94,100 |   |
| Secured term loan of Desta      Drilling, due June 2011(a)                                                                                                                                                                                                                                                                                                                                                                                               |   |                | -       |   |              |   | 39,375 |   |
| Subordinated notes of Desta      Drilling(b)                                                                   |   |                | -       |   |              |   | 7,500 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                | 395,000 |   |              |   | 365,975 |   |
| Less current maturities(c)                                                                                     |   |                | -       |   |              |   | (18,750 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | $                   | 395,000 |   |              | $      | 347,225 |   |
|                                                                                                                                                                                                                                                                                                                                                      |   |                |    |   |              |   |   |   |

----

| 5. | Other      Non-Current Liabilities |
|----|------------------------------------|

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | September      30,  |   |   | December      31, |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|--------|--------|-------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | 2009                |   |   | 2008              |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | (In      thousands) |   |
| Abandonment      obligations                                                                                    |   | $                   | 37,337 |   |              | $      | 31,737 |   |
| Other taxes      payable                                                                                        |   |                | -      |   |              |   | 144 |   |
| Other                                                                                                           |   |                | 656    |   |              |   | 736 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | $                   | 37,993 |   |              | $      | 32,617 |   |

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | Nine      Months Ended |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | September      30,     |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | 2009                   |   |   | 2008 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | (In      thousands)    |   |
| Beginning of      period                                                                                    |   | $                      | 31,737 |   |   | $ | 30,994 |   |
| Additional abandonment      obligations from new properties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                   | 1,239  |   |   |   | 975 |   |
| Sales or abandonments of      properties                                                                                        |   |                   | (123   | ) |   |   | (1,833 | ) |
| Revisions of previous      estimates                                                                                            |   |                   | 2,194  |   |   |   | (1,401 | ) |
| Accretion      expense                                                                                                          |   |                   | 2,290  |   |   |   | 1,669 |   |
| End of      period                                                                                          |   | $                      | 37,337 |   |   | $ | 30,404 |   |

| 6. | Compensation      Plans |
|----|-------------------------|

|                                                                                                   |   |   |    |   |     |   |   | Weighted    |   |   |      |   |
|--------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|----------|--------|--------|-------------|--------|--------|-----------|--------|
|                                                                                                   |   |   |    |   | Weighted |   |   | Average     |   |   |      |   |
|                                                                                                   |   |   |    |   | Average  |   |   | Remaining   |   |   | Aggregate |   |
|                                                                                                   |   |   |    |   | Exercise |   |   | Contractual |   |   | Intrinsic |   |
|                                                                                                   |   | Shares |    |   | Price    |   |   | Term        |   |   | Value(a)  |   |
| Outstanding      at January 1, 2009                                                                    |   |   | 53,638  |   |     | $      | 15.20  |        |   |   |      |   |   |   |
| Exercised (b)                                                                                     |   |   | (27,638 | )      |     | $      | 5.50   |        |   |   |      |   |   |   |
| Outstanding      at September 30, 2009                                                                 |   |   | 26,000  |   |     | $      | 25.52  |        |   |   | 4.4       |   |   | $ | 176,210 |   |
|                                                                                                   |   |   |    |   |     |   |   |        |   |   |      |   |   |   |   |   |
| Vested      at September 30, 2009                                                                      |   |   | 26,000  |   |     | $      | 25.52  |        |   |   | 4.4       |   |   | $ | 176,210 |   |
| Exercisable      at September 30, 2009                                                                 |   |   | 26,000  |   |     | $      | 25.52  |        |   |   | 4.4       |   |   | $ | 176,210 |   |
|                             |   |   |    |   |     |   |   |        |   |   |      |   |   |   |   |   |
| (a)     Based      on closing price at September 30, 2009 of $30.12 pershare. |   |
| (b)     Cash      received for options exercised totaled $152,000.            |   |

----

|                                                                                                                                                                                                                                                                                                                                                                                                           | Outstanding      and Exercisable Options                    |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                           |                                                        |   |   |   | Weighted |
|                                                                                                                                                                                                                                                                                                                                                                                                           |                                                        |   | Weighted |   | Average |
|                                                                                                                                                                                                                                                                                                                                                                                                           |                                                        |   | Average |   | Remaining |
|                                                                                                                                                                                                                                                                                                                                                                                                           |                                                        |   | Exercise |   | Life      in |
|                                                                                                                                                                                                                                                                                                                                                                                                           | Shares                                                      |   | Price |   | Years |
| Range      of exercise prices:                                                                                                                                                                                                                                                                                                                                                                                 |                                                        |   |   |   |   |
| $10.00 -      $19.74                                                                |               8,000 |   | $             12.42 |   | 2.1 |
| $22.90 -      $41.74                                                                |        18,000            |   | $             31.34 |   | 5.4 |
|                                                                                                                                                                                                                                                                                                                                                                                                           |        26,000            |   | $             25.52 |   | 4.4 |

|                                                                     |   | Nine      Months Ended                |   |
|--------------------------------------------------------------------------|--------|---------------------------------------|--------|
|                                                                     |   | September      30,                    |   |
|                                                                     |   | 2009                                  |   |   | 2008 |   |
|                                                                     |   | (In      thousands, except per share) |   |
| Weighted      average grant date fair value of options granted per share |   | $                                     | -      |   |   | $ | 23.06 |   |
| Intrinsic      value of options exercised                                |   | $                                     | 542    |   |   | $ | 20,423 |   |
|                                                                     |   |                                  |   |   |   |   |   |   |
| Stock-based      employee compensation expense                           |   | $                                     | -      |   |   | $ | 92 |   |
| Tax      benefit                                                         |   |                                  | -      |   |   |   | (32 | ) |
| Net      stock-based employee compensation expense                       |   | $                                     | -      |   |   | $ | 60 |   |

----

| 7. | Derivatives |
|----|-------------|

|                                                                                                                                                                   |   | Gas            |       |   | Oil    |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|------------|--------|--------|--------|
|                                                                                                                                                                   |   | MMBtu      (a) |       |   | Price  |   |   | Bbls |   |   | Price |   |
| Production      Period:                                                                                                                                                |   |           |       |   |   |   |   |   |   |   |   |   |
| 4th      Quarter 2009                                                                                                                                                  |   |           | 1,850,000  |   |   | $      | 5.47 |   |   |   | 400,000 |   |   | $ | 46.15 |   |
| 2010                            |   |           | 7,540,000  |   |   | $      | 6.80 |   |   |   | 2,204,000 |   |   | $ | 76.50 |   |
| 2011                            |   |           | 6,420,000  |   |   | $      | 7.07 |   |   |   | - |   |   | $ | - |   |
|                                                                                                                                                                   |   |           | 15,810,000 |   |   |   |   |   |   |   | 2,604,000 |   |   |   |   |   |
|                                                                                                                      |   |           |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   (a)     One      MMBtu equals one Mcf at a Btu factor of 1,000.                                                                   |   |

----

|                                                       | Liability      Derivatives     |   |
|------------------------------------------------------------|--------------------------------|--------|
|                                                       | Balance      Sheet             |   | September      30, 2009 |   |
|                                                       | Location                       |   | Fair      Value |   |
|     Derivatives not      designated as |                           |   | (In      thousands) |   |
| hedging      instruments:                                  |                           |   |   |   |
|     Commodity      contracts           | Current      liabilities -     |   |   |   |
|                                                       | Fair value of      derivatives |   | $ | 8,049 |   |
|                                                       | Non-current      liabilities - |   |   |   |   |
|                                                       | Fair value of      derivatives |   |   | 265 |   |
|     Total                              |                           |   | $ | 8,314 |   |

|                                                                              |   | September      30, 2009 |    |
|-----------------------------------------------------------------------------------|--------|-------------------------|---------|
|                                                                              |   | Assets                  |    |   | Liabilities |   |
|                                                                              |   | (In      thousands)     |    |
|     Fair      value of derivatives – gross presentation |   | $                       | 15,757  |   |   | $ | 24,071 |   |
|     Effects      of netting arrangements                      |   |                    | (15,757 | ) |   |   | (15,757 | ) |
|     Fair      value of derivatives – net presentation   |   | $                       | -       |   |   | $ | 8,314 |   |

|                                                       |   | Amount      of Gain or (Loss) Recognized in Earnings |
|------------------------------------------------------------|--------|------------------------------------------------------|
|                                                       |   |                                                 |   | Nine      Months Ended |
|                                                       |   | Location      of Gain or (Loss)                      |   | September      30, |
|                                                       |   | Recognized      in Earnings                          |   | 2009 |   | 2008 |
|                                                       |   |                                                 |   | (In      thousands) |
|     Derivatives not      designated as |   |                                                 |   |   |   |   |
|      hedging      instruments:    |   |                                                 |   |   |   |   |
|     Commodity      contracts           |   | Other      income (expense) -                        |   |   |   |   |
|                                                       |   | Loss on    derivatives                               |   | $          (14,537) |   | $       (61,986) |
|      Total                        |   |                                                 |   | $          (14,537) |   | $       (61,986) |

----

| 8. | Financial      Instruments |
|----|----------------------------|

|     Level 1      - | Inputs      are unadjusted, quoted prices in active markets for identical assets or      liabilities at the measurementdate. |
|----------------------------------------|------------------------------------------------------------------------------------------------------------------------------|

|     Level 2      - | Inputs      (other than quoted prices included in Level 1) are either directly or      indirectly observable for the asset or liability through correlation with      market data at the measurement date and for the duration of the      instrument’s anticipated life. |
|----------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|     Level 3      - | Inputs      reflect management’s best estimate of what market participants would use      in pricing the asset or liability at the measurement date. Consideration      is given to the risk inherent in the valuation technique and the risk      inherent in the inputs to themodel. |
|----------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                                                                                                                                                                                                                                                                                                                                                                                         |   | Fair      Value Measurements                                                               |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                         |   | September      30, 2009                                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                         |   | Significant                                                                                |
|                                                                                                                                                                                                                                                                                                                                                                                                                         |   | Other                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                         |   | Observable                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                         |   | Inputs                                                                                     |
| Description                                                                                                                                                                                                                                                                                                                                                                                                                  |   | (Level      2)                                                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                         |   | (In      thousands)                                                                        |
| Liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                                                                       |
| Fair value of commodity      derivatives                                                               |   | $              8,314 |
| Total      liabilities                                                                       |   | $              8,314 |

|                                                                                                                                                                                                                                                                                            |   | Fair      Value Measurements |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------|--------|
|                                                                                                                                                                                                                                                                                            |   | September      30, 2009      |   |
|                                                                                                                                                                                                                                                                                            |   | Significant                  |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                            |   | Other                        |   |   | Significant |   |   |   |   |
|                                                                                                                                                                                                                                                                                            |   | Observable                   |   |   | Unobservable |   |   |   |   |
|                                                                                                                                                                                                                                                                                            |   | Inputs                       |   |   | Inputs |   |   | Total |   |
| Description                                                                                                                                                                                                                                                                                     |   | (Level      2)               |   |   | (Level      3) |   |   | Losses |   |
|                                                                                                                                                                                                                                                                                            |   | (In      thousands)          |   |
| Assets:                                                                                                                                                                                                                                                                                         |   |                         |   |   |   |   |   |   |   |
| Inventory                                                                          |   | $                            | 20,893 |   |   | $ | - |   |   | $ | 4,139 |   |
| Assets held for sale(a)                                                            |   |                         | -      |   |   |   | 18,750 |   |   |   | 32,068 |   |
| Long-lived assets held and      used                                                                                                                                                                                                                                                            |   |                         | 17,314 |   |   |   | - |   |   |   | 16,194 |   |
| Total      assets                                              |   | $                            | 38,207 |   |   | $ | 18,750 |   |   | $ | 52,401 |   |
|                                                                                                                                                                                             |   |                         |   |   |   |   |   |   |   |   |   |   |
| (a)    For      information about Level 3 inputs, see Note 11.                                                                                                                                                                                                              |   |

| 9. | Income      Taxes |
|----|-------------------|

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | September      30,  |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | 2009                |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | (In      thousands) |   |
| Balance      at beginning of      period                                                                                              |   | $                   | 144    |   |
| Reductions      for tax positions of prior      years                                                                                 |   |                | (144   | ) |
| Balance      at end of      period                                                                                                    |   | $                   | -      |   |

| 10. | Investment      in Desta Drilling |
|-----|-----------------------------------|

----

| 11. | Impairment      of Property and Equipment |
|-----|-------------------------------------------|

| 12. | Oil      and Gas Properties |
|-----|-----------------------------|

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | September      30,  |      |   | December      31, |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|-----------|--------|-------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | 2009                |      |   | 2008              |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | (In      thousands) |      |
| Proved      properties                                                                                       |   | $                   | 1,506,699 |   |              | $      | 1,435,718 |   |
| Unproved      properties                                                                                     |   |                | 63,476    |   |              |   | 90,755 |   |
| Total capitalized      costs                                                                                 |   |                | 1,570,175 |   |              |   | 1,526,473 |   |
| Accumulated depreciation,      depletion and amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                | (881,409  | )      |              |   | (791,507 | ) |
| Net capitalized      costs                                                                                                            |   | $                   | 688,766   |   |              | $      | 734,966 |   |

| 13. | Sales      of Assets and Inventory Write-downs |
|-----|------------------------------------------------|

----

| 14. | Segment      Information |
|-----|--------------------------|

| For      the Three Months Ended                      |   |             |    |   |     |   |   |         |   |   |         |   |
|------------------------------------------------------|--------|------------------|---------|--------|----------|--------|--------|--------------|--------|--------|--------------|--------|
| September      30, 2009                              |   |             |    |   |     |   |   |         |   |   |         |   |
| (Unaudited)                                          |   |             |    |   | Contract |   |   | Intercompany |   |   | Consolidated |   |
| (In      thousands)                                  |   | Oil      and Gas |    |   | Drilling |   |   | Eliminations |   |   | Total        |   |
|                                                 |   |             |    |   |     |   |   |         |   |   |         |   |
| Revenues                                             |   | $                | 62,426  |   |     | $      | 4,596  |         |   | $      | (4,596       | )      |   | $ | 62,426 |   |
| Depreciation,      depletion and amortization (a)    |   |             | 29,661  |   |     |   | 982    |         |   |   | (590         | )      |   |   | 30,053 |   |
| Other      operating expenses (b)                    |   |             | 52,988  |   |     |   | 3,214  |         |   |   | (4,258       | )      |   |   | 51,944 |   |
| Interest      expense                                |   |             | 5,917   |   |     |   | 609    |         |   |   | -            |   |   |   | 6,526 |   |
| Other      (income) expense                          |   |             | (4,647  | )      |     |   | -      |         |   |   | -            |   |   |   | (4,647 | ) |
| Income      (loss) before income taxes               |   |             | (21,493 | )      |     |   | (209   | )            |   |   | 252          |   |   |   | (21,450 | ) |
|                                                 |   |             |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
| Income      tax (expense) benefit                    |   |             | 7,777   |   |     |   | 73     |         |   |   | -            |   |   |   | 7,850 |   |
| Net      income (loss)                               |   |             | (13,716 | )      |     |   | (136   | )            |   |   | 252          |   |   |   | (13,600 | ) |
| Less      income attributable to                     |   |             |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
|   noncontrolling      interest, net of tax |   |             | -       |   |     |   | -      |         |   |   | -            |   |   |   | - |   |
|                                                 |   |             |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
| Net      income (loss) attributable to               |   |             |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
|   Clayton      Williams Energy, Inc.       |   | $                | (13,716 | )      |     | $      | (136   | )            |   | $      | 252          |   |   | $ | (13,600 | ) |
|                                                 |   |             |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
| Total      assets                                    |   | $                | 792,143 |   |     | $      | 42,950 |         |   | $      | (450         | )      |   | $ | 834,643 |   |
| Additions      to property and equipment             |   | $                | 31,323  |   |     | $      | 122    |         |   | $      | -            |   |   | $ | 31,445 |   |
|                                                 |   |             |    |   |     |   |   |         |   |   |         |   |   |   |   |   |

| For      the Nine Months Ended                       |   |             |    |   |     |   |    |         |   |   |         |   |
|------------------------------------------------------|--------|------------------|---------|--------|----------|--------|---------|--------------|--------|--------|--------------|--------|
| September      30, 2009                              |   |             |    |   |     |   |    |         |   |   |         |   |
| (Unaudited)                                          |   |             |    |   | Contract |   |    | Intercompany |   |   | Consolidated |   |
| (In      thousands)                                  |   | Oil      and Gas |    |   | Drilling |   |    | Eliminations |   |   | Total        |   |
|                                                 |   |             |    |   |     |   |    |         |   |   |         |   |
| Revenues                                             |   | $                | 174,030 |   |     | $      | 22,109  |         |   | $      | (15,428      | )      |   | $ | 180,711 |   |
| Depreciation,      depletion and amortization (a)    |   |             | 90,533  |   |     |   | 37,004  |         |   |   | (2,765       | )      |   |   | 124,772 |   |
| Other      operating expenses (b)                    |   |             | 146,287 |   |     |   | 7,104   |         |   |   | (12,799      | )      |   |   | 140,592 |   |
| Interest      expense                                |   |             | 16,210  |   |     |   | 1,490   |         |   |   | -            |   |   |   | 17,700 |   |
| Other      (income) expense                          |   |             | 12,886  |   |     |   | -       |         |   |   | -            |   |   |   | 12,886 |   |
| Income      (loss) before income taxes               |   |             | (91,886 | )      |     |   | (23,489 | )            |   |   | 136          |   |   |   | (115,239 | ) |
|                                                 |   |             |    |   |     |   |    |         |   |   |         |   |   |   |   |   |
| Income      tax (expense) benefit                    |   |             | 33,956  |   |     |   | 8,215   |         |   |   | -            |   |   |   | 42,171 |   |
| Net      income (loss)                               |   |             | (57,930 | )      |     |   | (15,274 | )            |   |   | 136          |   |   |   | (73,068 | ) |
| Less      income attributable to                     |   |             |    |   |     |   |    |         |   |   |         |   |   |   |   |   |
|   noncontrolling      interest, net of tax |   |             | (2,910  | )      |     |   | 1,455   |         |   |   | -            |   |   |   | (1,455 | ) |
|                                                 |   |             |    |   |     |   |    |         |   |   |         |   |   |   |   |   |
| Net      income (loss) attributable to               |   |             |    |   |     |   |    |         |   |   |         |   |   |   |   |   |
|   Clayton      Williams Energy, Inc.       |   | $                | (60,840 | )      |     | $      | (13,819 | )            |   | $      | 136          |   |   | $ | (74,523 | ) |
|                                                 |   |             |    |   |     |   |    |         |   |   |         |   |   |   |   |   |
| Total      assets                                    |   | $                | 792,143 |   |     | $      | 42,950  |         |   | $      | (450         | )      |   | $ | 834,643 |   |
| Additions      to property and equipment             |   | $                | 86,370  |   |     | $      | 2,312   |         |   | $      | -            |   |   | $ | 88,682 |   |
|                                                 |   |             |    |   |     |   |    |         |   |   |         |   |   |   |   |   |

----

| For      the Three Months Ended                      |   |             |     |   |     |   |   |         |   |   |         |   |
|------------------------------------------------------|--------|------------------|----------|--------|----------|--------|--------|--------------|--------|--------|--------------|--------|
| September      30, 2008                              |   |             |     |   |     |   |   |         |   |   |         |   |
| (Unaudited)                                          |   |             |     |   | Contract |   |   | Intercompany |   |   | Consolidated |   |
| (In      thousands)                                  |   | Oil      and Gas |     |   | Drilling |   |   | Eliminations |   |   | Total        |   |
|                                                 |   |             |     |   |     |   |   |         |   |   |         |   |
| Revenues                                             |   | $                | 134,290  |   |     | $      | 16,708 |         |   | $      | (4,013       | )      |   | $ | 146,985 |   |
| Depreciation,      depletion and amortization (a)    |   |             | 35,077   |   |     |   | 2,699  |         |   |   | (565         | )      |   |   | 37,211 |   |
| Other      operating expenses (b)                    |   |             | 81,744   |   |     |   | 12,991 |         |   |   | (3,087       | )      |   |   | 91,648 |   |
| Interest      expense                                |   |             | 4,515    |   |     |   | 891    |         |   |   | -            |   |   |   | 5,406 |   |
| Other      (income) expense                          |   |             | (134,740 | )      |     |   | -      |         |   |   | -            |   |   |   | (134,740 | ) |
| Income      (loss) before income taxes               |   |             | 147,694  |   |     |   | 127    |         |   |   | (361         | )      |   |   | 147,460 |   |
|                                                 |   |             |     |   |     |   |   |         |   |   |         |   |   |   |   |   |
| Income      tax (expense) benefit                    |   |             | (53,212  | )      |     |   | 383    |         |   |   | -            |   |   |   | (52,829 | ) |
| Net      income (loss)                               |   |             | 94,482   |   |     |   | 510    |         |   |   | (361         | )      |   |   | 94,631 |   |
| Less      income (loss) attributable to              |   |             |     |   |     |   |   |         |   |   |         |   |   |   |   |   |
|   noncontrolling      interest, net of tax |   |             | 2        |   |     |   | (4     | )            |   |   | -            |   |   |   | (2 | ) |
|                                                 |   |             |     |   |     |   |   |         |   |   |         |   |   |   |   |   |
| Net      income (loss) attributable to               |   |             |     |   |     |   |   |         |   |   |         |   |   |   |   |   |
|   Clayton      Williams Energy, Inc.       |   | $                | 94,484   |   |     | $      | 506    |         |   | $      | (361         | )      |   | $ | 94,629 |   |
|                                                 |   |             |     |   |     |   |   |         |   |   |         |   |   |   |   |   |
| Total      assets                                    |   | $                | 869,251  |   |     | $      | 87,794 |         |   | $      | (8,241       | )      |   | $ | 948,804 |   |
| Additions      to property and equipment             |   | $                | 125,919  |   |     | $      | 1,066  |         |   | $      | (361         | )      |   | $ | 126,624 |   |
|                                                 |   |             |     |   |     |   |   |         |   |   |         |   |   |   |   |   |

| For      the Nine Months Ended                       |   |             |    |   |     |   |   |         |   |   |         |   |
|------------------------------------------------------|--------|------------------|---------|--------|----------|--------|--------|--------------|--------|--------|--------------|--------|
| September      30, 2008                              |   |             |    |   |     |   |   |         |   |   |         |   |
| (Unaudited)                                          |   |             |    |   | Contract |   |   | Intercompany |   |   | Consolidated |   |
| (In      thousands)                                  |   | Oil      and Gas |    |   | Drilling |   |   | Eliminations |   |   | Total        |   |
|                                                 |   |             |    |   |     |   |   |         |   |   |         |   |
| Revenues                                             |   | $                | 434,392 |   |     | $      | 50,745 |         |   | $      | (10,026      | )      |   | $ | 475,111 |   |
| Depreciation,      depletion and amortization (a)    |   |             | 85,925  |   |     |   | 7,932  |         |   |   | (1,399       | )      |   |   | 92,458 |   |
| Other      operating expenses (b)                    |   |             | 149,794 |   |     |   | 38,752 |         |   |   | (7,435       | )      |   |   | 181,111 |   |
| Interest      expense                                |   |             | 16,003  |   |     |   | 2,926  |         |   |   | -            |   |   |   | 18,929 |   |
| Other      (income) expense                          |   |             | 56,287  |   |     |   | -      |         |   |   | -            |   |   |   | 56,287 |   |
| Income      (loss) before income taxes               |   |             | 126,383 |   |     |   | 1,135  |         |   |   | (1,192       | )      |   |   | 126,326 |   |
|                                                 |   |             |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
| Income      tax (expense) benefit                    |   |             | (45,285 | )      |     |   | (124   | )            |   |   | -            |   |   |   | (45,409 | ) |
| Net      income (loss)                               |   |             | 81,098  |   |     |   | 1,011  |         |   |   | (1,192       | )      |   |   | 80,917 |   |
| Less      income (loss) attributable to              |   |             |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
|   noncontrolling      interest, net of tax |   |             | 151     |   |     |   | (431   | )            |   |   | -            |   |   |   | (280 | ) |
|                                                 |   |             |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
| Net      income (loss) attributable to               |   |             |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
|   Clayton      Williams Energy, Inc.       |   | $                | 81,249  |   |     | $      | 580    |         |   | $      | (1,192       | )      |   | $ | 80,637 |   |
|                                                 |   |             |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
| Total      assets                                    |   | $                | 869,251 |   |     | $      | 87,794 |         |   | $      | (8,241       | )      |   | $ | 948,804 |   |
| Additions      to property and equipment             |   | $                | 274,745 |   |     | $      | 1,683  |         |   | $      | (1,192       | )      |   | $ | 275,236 |   |
|                        |   |             |    |   |     |   |   |         |   |   |         |   |   |   |   |   |

| 15. | Guarantor      Financial Information |
|-----|--------------------------------------|

----

| (Unaudited)                                                                                                                                                                                                                          |   |   |    |   |         |   |    | Non-       |   |   |         |   |   |         |     |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------------|--------|---------|------------|--------|--------|--------------|--------|--------|--------------|----------|
| (Dollars      in thousands)                                                                                                                                                                                                          |   |   |    |   | Guarantor    |   |    | Guarantor  |   |   | Adjustments/ |   |   |         |     |
|                                                                                                                                                                                                                                 |   | Issuer |    |   | Subsidiaries |   |    | Subsidiary |   |   | Eliminations |   |   | Consolidated |     |
|                                                                                                                                                                                                                                 |   |   |    |   |         |   |    |       |   |   |         |   |   |         |     |
| Current      assets                                        |   | $      | 204,975 |   |         | $      | 256,621 |       |   | $      | 848          |   |   | $            | (346,128 | ) |   | $ | 116,316 |   |
| Property      and equipment, net                                                                                                                                                                                                     |   |   | 364,640 |   |         |   | 340,189 |       |   |   | 6,390        |   |   |         | -        |   |   |   | 711,219 |   |
| Investments      in subsidiaries                                                                                                                                                                                                     |   |   | 98,875  |   |         |   | -       |       |   |   | -            |   |   |         | (98,875  | ) |   |   | - |   |
| Other      assets                                          |   |   | 7,216   |   |         |   | 392     |       |   |   | -            |   |   |         | (500     | ) |   |   | 7,108 |   |
| Total      assets                                                              |   | $      | 675,706 |   |         | $      | 597,202 |       |   | $      | 7,238        |   |   | $            | (445,503 | ) |   | $ | 834,643 |   |
|                                                                                                                                                                                                                                 |   |   |    |   |         |   |    |       |   |   |         |   |   |         |     |   |   |   |   |   |
| Current      liabilities                                   |   | $      | 134,338 |   |         | $      | 279,001 |       |   | $      | 107          |   |   | $            | (345,586 | ) |   | $ | 67,860 |   |
| Non-current      liabilities:                                                                                                                                                                                                        |   |   |    |   |         |   |    |       |   |   |         |   |   |         |     |   |   |   |   |   |
| Long-term      debt                                                            |   |   | 395,000 |   |         |   | -       |       |   |   | -            |   |   |         | -        |   |   |   | 395,000 |   |
| Fair      value of derivatives                                                                                                                                                                                                       |   |   | 265     |   |         |   | -       |       |   |   | -            |   |   |         | -        |   |   |   | 265 |   |
| Other                                                                          |   |   | 54,964  |   |         |   | 61,282  |       |   |   | 131          |   |   |         | (2       | ) |   |   | 116,375 |   |
|                                                                                                                                                                                                                                 |   |   | 450,229 |   |         |   | 61,282  |       |   |   | 131          |   |   |         | (2       | ) |   |   | 511,640 |   |
|                                                                                                                                                                                                                                 |   |   |    |   |         |   |    |       |   |   |         |   |   |         |     |   |   |   |   |   |
| Equity                                                     |   |   | 91,139  |   |         |   | 256,919 |       |   |   | 7,000        |   |   |         | (99,915  | ) |   |   | 255,143 |   |
| Total      liabilities and                                                                                                                                                                                                           |   |   |    |   |         |   |    |       |   |   |         |   |   |         |     |   |   |   |   |   |
|   equity                                                             |   | $      | 675,706 |   |         | $      | 597,202 |       |   | $      | 7,238        |   |   | $            | (445,503 | ) |   | $ | 834,643 |   |

| (Dollars      in thousands)                                                                                                                                                                                                          |   |   |    |   |         |   |    | Non-       |   |   |         |   |   |         |     |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------------|--------|---------|------------|--------|--------|--------------|--------|--------|--------------|----------|
|                                                                                                                                                                                                                                 |   |   |    |   | Guarantor    |   |    | Guarantor  |   |   | Adjustments/ |   |   |         |     |
|                                                                                                                                                                                                                                 |   | Issuer |    |   | Subsidiaries |   |    | Subsidiary |   |   | Eliminations |   |   | Consolidated |     |
|                                                                                                                                                                                                                                 |   |   |    |   |         |   |    |       |   |   |         |   |   |         |     |
| Current      assets                                        |   | $      | 178,349 |   |         | $      | 188,538 |       |   | $      | 847          |   |   | $            | (242,250 | ) |   | $ | 125,484 |   |
| Property      and equipment, net                                                                                                                                                                                                     |   |   | 388,189 |   |         |   | 415,220 |       |   |   | 6,619        |   |   |         | -        |   |   |   | 810,028 |   |
| Investments      in subsidiaries                                                                                                                                                                                                     |   |   | 72,082  |   |         |   | -       |       |   |   | -            |   |   |         | (72,082  | ) |   |   | - |   |
| Other      assets                                          |   |   | 19,629  |   |         |   | 583     |       |   |   | -            |   |   |         | (12,315  | ) |   |   | 7,897 |   |
| Total      assets                                                              |   | $      | 658,249 |   |         | $      | 604,341 |       |   | $      | 7,466        |   |   | $            | (326,647 | ) |   | $ | 943,409 |   |
|                                                                                                                                                                                                                                 |   |   |    |   |         |   |    |       |   |   |         |   |   |         |     |   |   |   |   |   |
| Current      liabilities                                   |   | $      | 83,288  |   |         | $      | 281,734 |       |   | $      | 105          |   |   | $            | (242,250 | ) |   | $ | 122,877 |   |
| Non-current      liabilities:                                                                                                                                                                                                        |   |   |    |   |         |   |    |       |   |   |         |   |   |         |     |   |   |   |   |   |
| Long-term      debt                                                            |   |   | 319,100 |   |         |   | 40,225  |       |   |   | -            |   |   |         | (12,100  | ) |   |   | 347,225 |   |
| Other                                                                          |   |   | 95,619  |   |         |   | 57,302  |       |   |   | 113          |   |   |         | (3       | ) |   |   | 153,031 |   |
|                                                                                                                                                                                                                                 |   |   | 414,719 |   |         |   | 97,527  |       |   |   | 113          |   |   |         | (12,103  | ) |   |   | 500,256 |   |
|                                                                                                                                                                                                                                 |   |   |    |   |         |   |    |       |   |   |         |   |   |         |     |   |   |   |   |   |
| Equity                                                     |   |   | 160,242 |   |         |   | 225,080 |       |   |   | 7,248        |   |   |         | (72,294  | ) |   |   | 320,276 |   |
| Total      liabilities and                                                                                                                                                                                                           |   |   |    |   |         |   |    |       |   |   |         |   |   |         |     |   |   |   |   |   |
|   equity                                                             |   | $      | 658,249 |   |         | $      | 604,341 |       |   | $      | 7,466        |   |   | $            | (326,647 | ) |   | $ | 943,409 |   |

----

| (Unaudited)                                                                                                                                                                                                                                  |   |   |    |   |         |   |   | Non-       |   |   |         |   |   |         |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------------|--------|--------|------------|--------|--------|--------------|--------|--------|--------------|--------|
| (In      thousands)                                                                                                                                                                                                                          |   |   |    |   | Guarantor    |   |   | Guarantor  |   |   | Adjustments/ |   |   |         |   |
|                                                                                                                                                                                                                                         |   | Issuer |    |   | Subsidiaries |   |   | Subsidiary |   |   | Eliminations |   |   | Consolidated |   |
| Total      revenue                                                 |   | $      | 38,094  |   |         | $      | 24,549 |       |   | $      | 173          |   |   | $            | (390   | ) |   | $ | 62,426 |   |
| Costs      and      expenses                                       |   |   | 61,527  |   |         |   | 20,677 |       |   |   | 183          |   |   |         | (390   | ) |   |   | 81,997 |   |
| Operating      income (loss)                                                                                                                                                                                                                 |   |   | (23,433 | )      |         |   | 3,872  |       |   |   | (10          | )      |   |         | -      |   |   |   | (19,571 | ) |
| Other      income (expense)                                                                                                                                                                                                                  |   |   | (2,618  | )      |         |   | (1,058 | )          |   |   | 1,797        |   |   |         | -      |   |   |   | (1,879 | ) |
| Income      tax (expense) benefit                                                                                                                                                                                                            |   |   | 7,850   |   |         |   | -      |       |   |   | -            |   |   |         | -      |   |   |   | 7,850 |   |
| Noncontrolling      interest,                                                                                                                                                                                                                |   |   |    |   |         |   |   |       |   |   |         |   |   |         |   |   |   |   |   |   |
|   net      of      tax                                   |   |   | -       |   |         |   | -      |       |   |   | -            |   |   |         | -      |   |   |   | - |   |
|                                                                                                                                                                                                                                         |   |   |    |   |         |   |   |       |   |   |         |   |   |         |   |   |   |   |   |   |
| Net      income      (loss)                                                            |   | $      | (18,201 | )      |         | $      | 2,814  |       |   | $      | 1,787        |   |   | $            | -      |   |   | $ | (13,600 | ) |

| (Unaudited)                                                                                                                                                                                                                                  |   |   |    |   |         |   |    | Non-       |   |   |         |   |   |         |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------------|--------|---------|------------|--------|--------|--------------|--------|--------|--------------|--------|
| (In      thousands)                                                                                                                                                                                                                          |   |   |    |   | Guarantor    |   |    | Guarantor  |   |   | Adjustments/ |   |   |         |   |
|                                                                                                                                                                                                                                         |   | Issuer |    |   | Subsidiaries |   |    | Subsidiary |   |   | Eliminations |   |   | Consolidated |   |
| Total      revenue                                                 |   | $      | 105,727 |   |         | $      | 75,463  |       |   | $      | 440          |   |   | $            | (919   | ) |   | $ | 180,711 |   |
| Costs      and      expenses                                       |   |   | 171,970 |   |         |   | 93,514  |       |   |   | 799          |   |   |         | (919   | ) |   |   | 265,364 |   |
| Operating      income (loss)                                                                                                                                                                                                                 |   |   | (66,243 | )      |         |   | (18,051 | )          |   |   | (359         | )      |   |         | -      |   |   |   | (84,653 | ) |
| Other      income (expense)                                                                                                                                                                                                                  |   |   | (33,287 | )      |         |   | 2,592   |       |   |   | 109          |   |   |         | -      |   |   |   | (30,586 | ) |
| Income      tax (expense) benefit                                                                                                                                                                                                            |   |   | 42,171  |   |         |   | -       |       |   |   | -            |   |   |         | -      |   |   |   | 42,171 |   |
| Noncontrolling      interest,                                                                                                                                                                                                                |   |   |    |   |         |   |    |       |   |   |         |   |   |         |   |   |   |   |   |   |
|   net      of      tax                                   |   |   | (1,455  | )      |         |   | -       |       |   |   | -            |   |   |         | -      |   |   |   | (1,455 | ) |
|                                                                                                                                                                                                                                         |   |   |    |   |         |   |    |       |   |   |         |   |   |         |   |   |   |   |   |   |
| Net      income      (loss)                                                            |   | $      | (58,814 | )      |         | $      | (15,459 | )          |   | $      | (250         | )      |   | $            | -      |   |   | $ | (74,523 | ) |

| (Unaudited)                                                                                                                                                                                                                              |   |   |    |   |         |   |   | Non-       |   |   |         |   |   |         |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------------|--------|--------|------------|--------|--------|--------------|--------|--------|--------------|--------|
| (In      thousands)                                                                                                                                                                                                                      |   |   |    |   | Guarantor    |   |   | Guarantor  |   |   | Adjustments/ |   |   |         |   |
|                                                                                                                                                                                                                                     |   | Issuer |    |   | Subsidiaries |   |   | Subsidiary |   |   | Eliminations |   |   | Consolidated |   |
| Total      revenue                                             |   | $      | 82,492  |   |         | $      | 68,681 |       |   | $      | 325          |   |   | $            | (4,513 | ) |   | $ | 146,985 |   |
| Costs      and      expenses                                   |   |   | 91,875  |   |         |   | 40,970 |       |   |   | 166          |   |   |         | (4,152 | ) |   |   | 128,859 |   |
| Operating      income (loss)                                                                                                                                                                                                             |   |   | (9,383  | )      |         |   | 27,711 |       |   |   | 159          |   |   |         | (361   | ) |   |   | 18,126 |   |
| Other      income (expense)                                                                                                                                                                                                              |   |   | 124,799 |   |         |   | 4,457  |       |   |   | 78           |   |   |         | -      |   |   |   | 129,334 |   |
| Income      tax (expense) benefit                                                                                                                                                                                                        |   |   | (52,829 | )      |         |   | -      |       |   |   | -            |   |   |         | -      |   |   |   | (52,829 | ) |
| Noncontrolling      interest,                                                                                                                                                                                                            |   |   |    |   |         |   |   |       |   |   |         |   |   |         |   |   |   |   |   |   |
|   net      of tax                                                                                                                                                                                                              |   |   | (2      | )      |         |   | -      |       |   |   | -            |   |   |         | -      |   |   |   | (2 | ) |
| Net      income      (loss)                                                        |   | $      | 62,585  |   |         | $      | 32,168 |       |   | $      | 237          |   |   | $            | (361   | ) |   | $ | 94,629 |   |

| (Unaudited)                                                                                                                                                                                                                              |   |   |    |   |         |   |    | Non-       |   |   |         |   |   |         |    |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------------|--------|---------|------------|--------|--------|--------------|--------|--------|--------------|---------|
| (In      thousands)                                                                                                                                                                                                                      |   |   |    |   | Guarantor    |   |    | Guarantor  |   |   | Adjustments/ |   |   |         |    |
|                                                                                                                                                                                                                                     |   | Issuer |    |   | Subsidiaries |   |    | Subsidiary |   |   | Eliminations |   |   | Consolidated |    |
| Total      revenue                                             |   | $      | 290,005 |   |         | $      | 195,960 |       |   | $      | 868          |   |   | $            | (11,722 | ) |   | $ | 475,111 |   |
| Costs      and      expenses                                   |   |   | 171,546 |   |         |   | 112,064 |       |   |   | 489          |   |   |         | (10,530 | ) |   |   | 273,569 |   |
| Operating      income (loss)                                                                                                                                                                                                             |   |   | 118,459 |   |         |   | 83,896  |       |   |   | 379          |   |   |         | (1,192  | ) |   |   | 201,542 |   |
| Other      income (expense)                                                                                                                                                                                                              |   |   | (65,304 | )      |         |   | (10,068 | )          |   |   | 156          |   |   |         | -       |   |   |   | (75,216 | ) |
| Income      tax (expense) benefit                                                                                                                                                                                                        |   |   | (45,409 | )      |         |   | -       |       |   |   | -            |   |   |         | -       |   |   |   | (45,409 | ) |
| Noncontrolling      interest,                                                                                                                                                                                                            |   |   |    |   |         |   |    |       |   |   |         |   |   |         |    |   |   |   |   |   |
|   net      of tax                                                                                                                                                                                                              |   |   | (280    | )      |         |   | -       |       |   |   | -            |   |   |         | -       |   |   |   | (280 | ) |
| Net      income      (loss)                                                        |   | $      | 7,466   |   |         | $      | 73,828  |       |   | $      | 535          |   |   | $            | (1,192  | ) |   | $ | 80,637 |   |

----

| (Unaudited)                                                                                                                                                                                                                     |   |   |     |   |         |   |    | Non-       |   |   |         |   |   |         |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|----------|--------|--------------|--------|---------|------------|--------|--------|--------------|--------|--------|--------------|--------|
| (In      thousands)                                                                                                                                                                                                             |   |   |     |   | Guarantor    |   |    | Guarantor  |   |   | Adjustments/ |   |   |         |   |
|                                                                                                                                                                                                                            |   | Issuer |     |   | Subsidiaries |   |    | Subsidiary |   |   | Eliminations |   |   | Consolidated |   |
| Operating      activities                                  |   | $      | 51,471   |   |         | $      | 14,569  |       |   | $      | 17           |   |   | $            | 2,150  |   |   | $ | 68,207 |   |
| Investing      activities                                  |   |   | (145,698 | )      |         |   | 24,228  |       |   |   | (56          | )      |   |         | (2,150 | ) |   |   | (123,676 | ) |
| Financing      activities                                  |   |   | 76,819   |   |         |   | (40,138 | )          |   |   | (4           | )      |   |         | -      |   |   |   | 36,677 |   |
| Net      increase (decrease) in                                                                                                                                                                                                 |   |   |     |   |         |   |    |       |   |   |         |   |   |         |   |   |   |   |   |   |
| cash      and cash equivalents                                                                                                                                                                                                  |   |   | (17,408  | )      |         |   | (1,341  | )          |   |   | (43          | )      |   |         | -      |   |   |   | (18,792 | ) |
|                                                                                                                                                                                                                            |   |   |     |   |         |   |    |       |   |   |         |   |   |         |   |   |   |   |   |   |
| Cash      at the beginning of                                                                                                                                                                                                   |   |   |     |   |         |   |    |       |   |   |         |   |   |         |   |   |   |   |   |   |
| the      period                                                 |   |   | 35,381   |   |         |   | 5,054   |       |   |   | 764          |   |   |         | -      |   |   |   | 41,199 |   |
|                                                                                                                                                                                                                            |   |   |     |   |         |   |    |       |   |   |         |   |   |         |   |   |   |   |   |   |
| Cash      at end of the period                                                                                                                                                                                                  |   | $      | 17,973   |   |         | $      | 3,713   |       |   | $      | 721          |   |   | $            | -      |   |   | $ | 22,407 |   |

| (Unaudited)                                                                                                                                                                                                                     |   |   |    |   |         |   |    | Non-       |   |   |         |   |   |         |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------------|--------|---------|------------|--------|--------|--------------|--------|--------|--------------|--------|
| (In      thousands)                                                                                                                                                                                                             |   |   |    |   | Guarantor    |   |    | Guarantor  |   |   | Adjustments/ |   |   |         |   |
|                                                                                                                                                                                                                            |   | Issuer |    |   | Subsidiaries |   |    | Subsidiary |   |   | Eliminations |   |   | Consolidated |   |
| Operating      activities                                  |   | $      | 133,386 |   |         | $      | 87,516  |       |   | $      | 755          |   |   | $            | 1,399  |   |   | $ | 223,056 |   |
| Investing      activities                                  |   |   | (27,240 | )      |         |   | (92,769 | )          |   |   | (303         | )      |   |         | (1,399 | ) |   |   | (121,711 | ) |
| Financing      activities                                  |   |   | (81,010 | )      |         |   | 1,853   |       |   |   | -            |   |   |         | -      |   |   |   | (79,157 | ) |
| Net      increase (decrease) in                                                                                                                                                                                                 |   |   |    |   |         |   |    |       |   |   |         |   |   |         |   |   |   |   |   |   |
| cash      and cash equivalents                                                                                                                                                                                                  |   |   | 25,136  |   |         |   | (3,400  | )          |   |   | 452          |   |   |         | -      |   |   |   | 22,188 |   |
|                                                                                                                                                                                                                            |   |   |    |   |         |   |    |       |   |   |         |   |   |         |   |   |   |   |   |   |
| Cash      at the beginning of                                                                                                                                                                                                   |   |   |    |   |         |   |    |       |   |   |         |   |   |         |   |   |   |   |   |   |
| the      period                                                 |   |   | 5,325   |   |         |   | 6,886   |       |   |   | 133          |   |   |         | -      |   |   |   | 12,344 |   |
|                                                                                                                                                                                                                            |   |   |    |   |         |   |    |       |   |   |         |   |   |         |   |   |   |   |   |   |
| Cash      at end of the period                                                                                                                                                                                                  |   | $      | 30,461  |   |         | $      | 3,486   |       |   | $      | 585          |   |   | $            | -      |   |   | $ | 34,532 |   |

| 16. | Subsequent      Events |
|-----|------------------------|

----

Item 

|   | • | commodity      price volatility; |
|--------|---------|----------------------------------|

----

|   | • | domestic      and worldwide economic conditions; |
|--------|---------|--------------------------------------------------|

|   | • | the      availability of capital on economic terms to fund our capital expenditures      and acquisitions; |
|--------|---------|------------------------------------------------------------------------------------------------------------|

|   | • | our      level of indebtedness; |
|--------|---------|---------------------------------|

|   | • | the      impact of the current economic recession on our business operations,      financial condition and ability to raise  capital; |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------|

|   | • | declines      in the value of our oil and gas properties resulting in a decrease in our      borrowing base under our credit facility and  impairments; |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | the      ability of financial counterparties to perform or fulfill their      obligations under existingagreements; |
|--------|---------|---------------------------------------------------------------------------------------------------------------------|

|   | • | the      uncertainty inherent in estimating proved oil and gas reserves and in      projecting future rates of production and timing of development      expenditures; |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | drilling      and other operating risks; |
|--------|---------|------------------------------------------|

|   | • | hurricanes      and other weather conditions; |
|--------|---------|-----------------------------------------------|

|   | • | lack      of availability of goods andservices; |
|--------|---------|-------------------------------------------------|

|   | • | regulatory      and environmental risks associated with drilling and production      activities; |
|--------|---------|--------------------------------------------------------------------------------------------------|

|   | • | the      adverse effects of changes in applicable tax, environmental and other      regulatory legislation; and |
|--------|---------|-----------------------------------------------------------------------------------------------------------------|

|   | • | the      other risks described in our Form 10-K for the year ended December 31,      2008, in our Form 10-Qs for the quarterly periods ended March 31, 2009 and      June 30, 2009 and in this Form10-Q. |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | Our      oil and gas sales for the third quarter decreased $68.9 million, or 54%,      from 2008 due substantially to decreases in prices for both oil and      gas. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Our      oil and gas production for the third quarter of 2009 was 5% lower on a      barrel of oil equivalent (“BOE”) basis than in the comparable period in      2008.  Our oil production was 12% lower than the third quarter      of 2008, and gas production remained relatively constant compared to the      2008 period. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | We      recorded a $4.7 million net gain on derivatives in the third quarter of      2009, consisting of a $10.6 million non-cash gain for changes in      mark-to-market valuations and a $5.9 million realized loss on settled      contracts.  For the same period in 2008, we reported a $132.7      million net gain on derivatives, consisting of a $169.5 million non-cash      gain due to changes in mark-to-market valuations and a $36.8 million      realized loss on settled contracts.  Since we do not presently      designate our derivatives as cash flow hedges under applicable accounting      standards, we recognize the full effect of changing prices on      mark-to-market valuations as a current charge or credit to our results of      operations. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | During      the third quarter of 2009, we increased borrowings under our revolving      credit facility by $50.7 million from $119.3 million at June 30, 2009 to      $170 million at September 30, 2009.  In August 2009,      werepaid      in full all amounts outstanding under the secured term loan of Desta      Drilling, LP “Desta Drilling” with borrowings of approximately $27.2      million under the revolving credit facility (see Liquidity and Capital      Resources). |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | At      September 30, 2009, our capitalized unproved oil and gas properties      totaled $63.5 million, of which approximately $33 million was      attributable to unproved acreage.  Therefore, our results of      operations in future periods may be adversely affected by abandonments and      impairments related to unproved oil and gas  properties. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | Three      Months Ended |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | September      30,      |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | 2009                    |   |   | 2008 |   |
| Oil      and Gas Production Data:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                    |   |   |   |   |
| Gas      (MMcf)                                                                                                                           |   |                    | 3,900  |   |   |   | 3,920 |   |
| Oil      (MBbls)                                                                                                                          |   |                    | 662    |   |   |   | 755 |   |
| Natural gas liquids      (MBbls)                                                                                                          |   |                    | 63     |   |   |   | 39 |   |
| Total      (MBOE)                                                                                                                         |   |                    | 1,375  |   |   |   | 1,447 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                    |   |   |   |   |   |   |
| Average      Realized Prices (a):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                    |   |   |   |   |   |   |
| Gas      ($/Mcf)                                                                                                                          |   | $                       | 3.79   |   |   | $ | 9.88 |   |
| Oil      ($/Bbl)                                                                                                                          |   | $                       | 64.60  |   |   | $ | 116.01 |   |
| Natural gas liquids      ($/Bbl)                                                                                                          |   | $                       | 31.89  |   |   | $ | 69.90 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                    |   |   |   |   |   |   |
| Gain      (Loss) on Settled Derivative Contracts (a):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                    |   |   |   |   |   |   |
| ($ in thousands, except per      unit)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                    |   |   |   |   |   |   |
| Gas:  Net realized      gain      (loss)                                                                                        |   | $                       | 2,992  |   |   | $ | (7,190 | ) |
| Per unit produced      ($/Mcf)                                                                                                                                               |   | $                       | .77    |   |   | $ | (1.83 | ) |
| Oil:    Net      realized      loss                                                                                        |   | $                       | (8,861 | ) |   | $ | (29,324 | ) |
| Per unit produced      ($/Bbl)                                                                                                                                               |   | $                       | (13.39 | ) |   | $ | (38.84 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                    |   |   |   |   |   |   |
| Average      Daily Production:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                    |   |   |   |   |   |   |
| Gas (Mcf):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                    |   |   |   |   |   |   |
| Permian      Basin                                                                                                                                                           |   |                    | 14,374 |   |   |   | 13,536 |   |
| North      Louisiana                                                                                                                                                         |   |                    | 10,076 |   |   |   | 16,273 |   |
| South      Louisiana                                                                                                                                                         |   |                    | 10,755 |   |   |   | 4,320 |   |
| Austin Chalk      (Trend)                                                                                                                                                    |   |                    | 2,306  |   |   |   | 2,271 |   |
| Cotton Valley Reef      Complex                                                                                                                                              |   |                    | 3,916  |   |   |   | 5,832 |   |
| Other                                                                                                                                                                        |   |                    | 964    |   |   |   | 377 |   |
| Total                                                                                                                                                                                                      |   |                    | 42,391 |   |   |   | 42,609 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                    |   |   |   |   |   |   |
| Oil (Bbls):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                    |   |   |   |   |   |   |
| Permian      Basin                                                                                                                                                           |   |                    | 3,526  |   |   |   | 3,983 |   |
| North      Louisiana                                                                                                                                                         |   |                    | 230    |   |   |   | 392 |   |
| South      Louisiana                                                                                                                                                         |   |                    | 773    |   |   |   | 90 |   |
| Austin Chalk      (Trend)                                                                                                                                                    |   |                    | 2,585  |   |   |   | 3,659 |   |
| Other                                                                                                                                                                        |   |                    | 82     |   |   |   | 83 |   |
| Total                                                                                                                                                                                                      |   |                    | 7,196  |   |   |   | 8,207 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                    |   |   |   |   |   |   |
| Natural Gas Liquids      (Bbls):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                    |   |   |   |   |   |   |
| Permian      Basin                                                                                                                                                           |   |                    | 246    |   |   |   | 174 |   |
| North      Louisiana                                                                                                                                                         |   |                    | 26     |   |   |   | 3 |   |
| South      Louisiana                                                                                                                                                         |   |                    | 116    |   |   |   | 6 |   |
| Austin Chalk      (Trend)                                                                                                                                                    |   |                    | 288    |   |   |   | 233 |   |
| Other                                                                                                                                                                        |   |                    | 9      |   |   |   | 8 |   |
| Total                                                                                                                                                                                                      |   |                    | 685    |   |   |   | 424 |   |

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | Three      Months Ended |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | September      30,      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | 2009                    |   |   | 2008 |
| Exploration      Costs (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                    |   |   |   |
| Abandonment and impairment      costs:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                    |   |   |   |
| Permian      Basin                                                                                                                                             |   | $                       | 4 |   |   | $ | 716 |   |
| North      Louisiana                                                                                                                                           |   |                    | 3,172 |   |   |   | - |   |
| South      Louisiana                                                                                                                                           |   |                    | 18,955 |   |   |   | - |   |
| East Texas      Bossier                                                                                                                                        |   |                    | 958 |   |   |   | 40,063 |   |
| Utah                                                                                                                                                           |   |                    | 750 |   |   |   | - |   |
| Other                                                                                                                                                          |   |                    | 310 |   |   |   | 2,257 |   |
| Total                                                                                                                                                                                        |   |                    | 24,149 |   |   |   | 43,036 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                    |   |   |   |   |   |   |   |
| Seismic and      other                                                                                                      |   |                    | 898 |   |   |   | 5,993 |   |
| Total exploration      costs                                                                                                                                                                 |   | $                       | 25,047 |   |   | $ | 49,029 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                    |   |   |   |   |   |   |   |
| Depreciation,      Depletion and Amortization (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                    |   |   |   |   |   |   |   |
| Oil and gas      depletion                                                                                                  |   | $                       | 29,481 |   |   | $ | 24,881 |   |   |
| Contract drilling      depreciation                                                                                         |   |                    | 392 |   |   |   | 2,134 |   |   |
| Other      depreciation                                                                                                     |   |                    | 180 |   |   |   | 211 |   |   |
| Total      DD&A                                                                                                                                                                          |   | $                       | 30,053 |   |   | $ | 27,226 |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                    |   |   |   |   |   |   |   |
| Oil      and Gas Costs ($/BOE Produced):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                    |   |   |   |   |   |   |   |
| Production      costs                                                                                                       |   | $                       | 14.01 |   |   | $ | 15.80 |   |   |
| Oil and gas      depletion                                                                                                  |   | $                       | 21.44 |   |   | $ | 17.19 |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                    |   |   |   |   |   |   |   |
| Net      Wells Drilled (b):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                    |   |   |   |   |   |   |   |
| Exploratory      Wells                                                                                                      |   |                    | 1.1 |   |   |   | - |   |   |
| Developmental      Wells                                                                                                    |   |                    | 16.6 |   |   |   | 21.6 |   |   |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | Nine      Months Ended |    |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|---------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | September      30,     |    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | 2009                   |    |   | 2008 |   |
| Oil      and Gas Production Data:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                   |    |   |   |   |
| Gas      (MMcf)                                                                                                         |   |                   | 12,369  |   |   |   | 13,645 |   |
| Oil      (MBbls)                                                                                                        |   |                   | 2,129   |   |   |   | 2,142 |   |
| Natural gas liquids      (MBbls)                                                                                        |   |                   | 175     |   |   |   | 138 |   |
| Total      (MBOE)                                                                                                       |   |                   | 4,366   |   |   |   | 4,554 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                   |    |   |   |   |   |   |
| Average      Realized Prices (a):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                   |    |   |   |   |   |   |
| Gas      ($/Mcf)                                                                                                        |   | $                      | 4.11    |   |   | $ | 9.83 |   |
| Oil      ($/Bbl)                                                                                                        |   | $                      | 52.10   |   |   | $ | 111.48 |   |
| Natural gas liquids      ($/Bbl)                                                                                        |   | $                      | 26.70   |   |   | $ | 61.70 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                   |    |   |   |   |   |   |
| Gain      (Loss) on Settled Derivative Contracts (a):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                   |    |   |   |   |   |   |
| ($ in thousands, except per      unit)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                   |    |   |   |   |   |   |
| Gas:  Net realized      gain (loss)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   | $                      | 7,478   |   |   | $ | (18,361 | ) |
| Per unit produced      ($/Mcf)                                                                                                                             |   | $                      | .60     |   |   | $ | (1.35 | ) |
| Oil:    Net      realized      loss                                                                                                    |   | $                      | (13,701 | ) |   | $ | (65,578 | ) |
| Per unit produced      ($/Bbl)                                                                                                                             |   | $                      | (6.44   | ) |   | $ | (30.62 | ) |

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | Nine      Months Ended |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | September      30,     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | 2009                   |   |   | 2008 |
| Average      Daily Production:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                   |   |   |   |
| Natural Gas    (Mcf):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                   |   |   |   |
| Permian      Basin                                                                                                                                            |   |                   | 15,157 |   |   |   | 14,287 |   |
| North      Louisiana                                                                                                                                          |   |                   | 12,007 |   |   |   | 15,169 |   |
| South      Louisiana                                                                                                                                          |   |                   | 10,342 |   |   |   | 11,682 |   |
| Austin Chalk      (Trend)                                                                                                                                     |   |                   | 2,580 |   |   |   | 2,313 |   |
| Cotton Valley Reef      Complex                                                                                                                               |   |                   | 3,989 |   |   |   | 5,848 |   |
| Other                                                                                                                                                         |   |                   | 1,233 |   |   |   | 500 |   |
| Total                                                                                                                                                                                       |   |                   | 45,308 |   |   |   | 49,799 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                   |   |   |   |   |   |   |   |
| Oil (Bbls):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                   |   |   |   |   |   |   |   |
| Permian      Basin                                                                                                                                            |   |                   | 4,010 |   |   |   | 3,683 |   |
| North      Louisiana                                                                                                                                          |   |                   | 257 |   |   |   | 363 |   |
| South      Louisiana                                                                                                                                          |   |                   | 624 |   |   |   | 393 |   |
| Austin Chalk      (Trend)                                                                                                                                     |   |                   | 2,821 |   |   |   | 3,291 |   |
| Other                                                                                                                                                         |   |                   | 87 |   |   |   | 88 |   |
| Total                                                                                                                                                                                       |   |                   | 7,799 |   |   |   | 7,818 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                   |   |   |   |   |   |   |   |
| Natural Gas Liquids      (Bbls):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                   |   |   |   |   |   |   |   |
| Permian      Basin                                                                                                                                            |   |                   | 241 |   |   |   | 181 |   |
| North      Louisiana                                                                                                                                          |   |                   | 21 |   |   |   | 3 |   |
| South      Louisiana                                                                                                                                          |   |                   | 73 |   |   |   | 62 |   |
| Austin Chalk      (Trend)                                                                                                                                     |   |                   | 296 |   |   |   | 249 |   |
| Other                                                                                                                                                         |   |                   | 10 |   |   |   | 9 |   |
| Total                                                                                                                                                                                       |   |                   | 641 |   |   |   | 504 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                   |   |   |   |   |   |   |   |
| Exploration      Costs (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                   |   |   |   |   |   |   |   |
| Abandonment and impairment      costs:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                   |   |   |   |   |   |   |   |
| Permian      Basin                                                                                                                                            |   | $                      | 768 |   |   | $ | 716 |   |
| North      Louisiana                                                                                                                                          |   |                   | 4,280 |   |   |   | 2,162 |   |
| South      Louisiana                                                                                                                                          |   |                   | 19,768 |   |   |   | - |   |
| East Texas      Bossier                                                                                                                                       |   |                   | 11,742 |   |   |   | 40,063 |   |
| Utah                                                                                                                                                          |   |                   | 3,082 |   |   |   | - |   |
| Other                                                                                                                                                         |   |                   | 1,426 |   |   |   | 2,325 |   |
| Total                                                                                                                                                                                            |   |                   | 41,066 |   |   |   | 45,266 |   |
| Seismic and      other                                                                                                     |   |                   | 6,556 |   |   |   | 11,230 |   |
| Total exploration      costs                                                                                                                                                                     |   | $                      | 47,622 |   |   | $ | 56,496 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                   |   |   |   |   |   |   |   |
| Depreciation,      Depletion and Amortization (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                   |   |   |   |   |   |   |   |
| Oil and gas      depletion                                                                                                 |   | $                      | 89,914 |   |   | $ | 75,220 |   |   |
| Contract drilling      depreciation                                                                                        |   |                   | 2,171 |   |   |   | 6,533 |   |   |
| Other      depreciation                                                                                                    |   |                   | 619 |   |   |   | 720 |   |   |
| Total      DD&A                                                                                                                                                                              |   | $                      | 92,704 |   |   | $ | 82,473 |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                   |   |   |   |   |   |   |   |
| Oil      and Gas Costs ($/BOE Produced):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                   |   |   |   |   |   |   |   |
| Production      costs                                                                                                      |   | $                      | 12.97 |   |   | $ | 14.35 |   |   |
| Oil and gas      depletion                                                                                                 |   | $                      | 20.59 |   |   | $ | 16.52 |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                   |   |   |   |   |   |   |   |
| Net      Wells Drilled (b):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                   |   |   |   |   |   |   |   |
| Exploratory      Wells                                                                                                     |   |                   | 2.5 |   |   |   | 2.7 |   |   |
| Developmental      Wells                                                                                                   |   |                   | 28.5 |   |   |   | 57.3 |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                   |   |   |   |   |   |   |   |
| (a)   No      derivatives were designated as cash flow hedges in 2009 or 2008. All      gains or losses on settled derivatives were included in other income      (expense) - gain (loss) on derivatives.                                                                                                                                                                                                                                                                                                                                                 |   |                   |
| (b)   Excludes      wells being drilled or completed at the end of eachperiod.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                   |

----

----

----

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----

|                                                                                                                                                                                   |   | Actual                  |   |   | Planned                |   |    |           |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|--------|--------|------------------------|--------|---------|----------------|--------|
|                                                                                                                                                                                   |   | Expenditures            |   |   | Expenditures           |   |    | Year      2009 |   |
|                                                                                                                                                                                   |   | Nine      Months Ended  |   |   | Year      Ending       |   |    | Percentage     |   |
|                                                                                                                                                                                   |   | September      30, 2009 |   |   | December      31, 2009 |   |    | of      Total  |   |
|                                                                                                                                                                                   |   | (In      thousands)     |   |   |                   |   |
| Permian      Basin                              |   | $                       | 33,900 |   |                   | $      | 62,300  |           |   |   | 48 | % |
| South      Louisiana                            |   |                    | 24,500 |   |                   |   | 25,400  |           |   |   | 19 | % |
| East      Texas Bossier                                                                                                                                                                |   |                    | 15,000 |   |                   |   | 15,400  |           |   |   | 12 | % |
| Austin      Chalk (Trend)                                                                                                                                                              |   |                    | 4,600  |   |                   |   | 13,300  |           |   |   | 10 | % |
| Utah/California                                 |   |                    | 5,500  |   |                   |   | 6,200   |           |   |   | 5 | % |
| North      Louisiana                            |   |                    | 4,400  |   |                   |   | 5,100   |           |   |   | 4 | % |
| Other                                           |   |                    | 2,000  |   |                   |   | 3,400   |           |   |   | 2 | % |
|                                                                                                                                                                                   |   | $                       | 89,900 |   |                   | $      | 131,100 |           |   |   | 100 | % |

----

----

|                                                                                                                                                                        |   | September      30,  |    |   | December      31, |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|---------|--------|-------------------|--------|
|                                                                                                                                                                        |   | 2009                |    |   | 2008              |   |
|                                                                                                                                                                        |   | (In      thousands) |    |
| Working      capital per GAAP                                                                                                                                               |   | $                   | 48,356  |   |              | $      | 2,607 |   |
| Add      funds available under the revolving credit facility                                                                                                                |   |                | 79,196  |   |              |   | 155,096 |   |
| Exclude      fair value of derivatives classified as current assets or current      liabilities                                                                             |   |                | 8,049   |   |              |   | - |   |
| Exclude      current assets and current liabilities of Desta Drilling (a)                                                                                                   |   |                | -       |   |              |   | 13,205 |   |
| Working      capital per loan covenant                                                                                                                                      |   | $                   | 135,601 |   |              | $      | 170,908 |   |
|                                                                                                                                               |   |                |    |   |              |   |   |   |
| (a)  In      August 2009, we repaid all of the secured term loan of Desta Drilling with      borrowings under our secured bank credit facility due May      2012. |   |                |    |   |              |   |   |   |

----

----

Item 

----

|                                                                                                                                                                   |   | Gas            |       |   | Oil    |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|------------|--------|--------|--------|
|                                                                                                                                                                   |   | MMBtu      (a) |       |   | Price  |   |   | Bbls |   |   | Price |   |
| Production      Period:                                                                                                                                                |   |           |       |   |   |   |   |   |   |   |   |   |
| 4th      Quarter 2009                                                                                                                                                  |   |           | 1,850,000  |   |   | $      | 5.47 |   |   |   | 400,000 |   |   | $ | 46.15 |   |
| 2010                            |   |           | 7,540,000  |   |   | $      | 6.80 |   |   |   | 2,204,000 |   |   | $ | 76.50 |   |
| 2011                            |   |           | 6,420,000  |   |   | $      | 7.07 |   |   |   | - |   |   | $ | - |   |
|                                                                                                                                                                   |   |           | 15,810,000 |   |   |   |   |   |   |   | 2,604,000 |   |   |   |   |   |
|                                                                                                                           |   |           |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   (a)   One MMBtu equals      one Mcf at a Btu factor of 1,000.                                                                               |   |

----

Item 

| ·   | Management      has evaluated the effectiveness of our disclosure controls and procedures      as of the end of the period covered by this  report; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | This      evaluation was conducted under the supervision and with the participation      of our management, including our chief executive and chief financial      officers; and |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | It      is the conclusion of our chief executive officer and our chief financial      officer that these disclosure controls and procedures are effective in      ensuring that information that is required to be disclosed by the Company      in reports filed or submitted with the SEC is recorded, processed,      summarized and reported within the time periods specified in the rules and      forms established by the SEC. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Item 

----

----

Item 

| **3.1   |   | Second      Restated Certificate of Incorporation of the Company, filed as Exhibit 3.1      to our Form S-2 Registration Statement, Commission File No.      333-13441                                                                                                                               |
|---------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                                                                                                                 |
| **3.2   |   | Certificate      of Amendment of Second Restated Certificate of Incorporation of Clayton      Williams Energy, Inc., filed as Exhibit 3.1 to our Form 10-Q for the      period ended September 30, 2000††                                                                                |
|    |   |                                                                                                                                                                                                                                                                                                 |
| **3.3   |   | Corporate      Bylaws of Clayton Williams Energy, Inc., as amended, filed as      Exhibit 3.1 to our Current Report on Form 8-K filed with the      Commission on March 14, 2008††                                                                                             |
|    |   |                                                                                                                                                                                                                                                                                                 |
| **4.1   |   | Indenture,      dated July 20, 2005, among Clayton Williams Energy, Inc., the Subsidiary      Guarantors and Wells Fargo Bank, National Association, as Trustee, filed      as Exhibit 4.1 to our Current Report on Form 8-K filed with the      Commission on July 22, 2005†† |
|    |   |                                                                                                                                                                                                                                                                                                 |
| *31.1   |   | Certification      by the President and Chief Executive Officer of the Company pursuant to      Rule 13a - 14(a) of the Securities Exchange Act of      1934                                                                                                                               |
|    |   |                                                                                                                                                                                                                                                                                                 |
| *31.2   |   | Certification      by the Chief Financial Officer of the Company pursuant to Rule      13a - 14(a) of the Securities Exchange Act of    1934                                                                                                                                               |
|    |   |                                                                                                                                                                                                                                                                                                 |
| ***32.1 |   | Certifications      by the Chief Executive Officer and Chief Financial Officer of the Company      pursuant to 18 U.S.C. § 1350                                                                                                                                                  |
|    |   |

|   | * | Filed      herewith |
|--------|---|---------------------|

|   | ** | Incorporated      by reference to the filingindicated |
|--------|----|-------------------------------------------------------|

|   | *** | Furnished      herewith |
|--------|-----|-------------------------|

|   | † | Identifies      an Exhibit that consists of or includes a management contract or      compensatory plan or arrangement |
|--------|---------|------------------------------------------------------------------------------------------------------------------------|

|   | †† | Filed      under our Commission FileNo. 001-10924 |
|--------|----------------|--------------------------------------------------------|

----

WILLIAMS 

|   |   | CLAYTON      WILLIAMS ENERGY, INC. |
|--------|--------|------------------------------------|

| Date:  | November      6, 2009 | By:    | /s/      L. Paul Latham                 |
|--------|-----------------------|--------|-----------------------------------------|
|   |                  |   | L.      Paul Latham                     |
|   |                  |   | Executive      Vice President and Chief |
|   |                  |   |   Operating      Officer      |

| Date:  | November      6, 2009 | By:    | /s/      Mel G. Riggs                          |
|--------|-----------------------|--------|------------------------------------------------|
|   |                  |   | Mel      G. Riggs                              |
|   |                  |   | Senior      Vice President and Chief Financial |
|   |                  |   |   Officer                            |

----

| Exhibits |   | Description                                                                                                                                                                                                                                                                                          |
|----------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **3.1    |   | Second      Restated Certificate of Incorporation of the Company, filed as Exhibit 3.1      to our Form S-2 Registration Statement, Commission File No.      333-13441                                                                                                                               |
|     |   |                                                                                                                                                                                                                                                                                                 |
| **3.2    |   | Certificate      of Amendment of Second Restated Certificate of Incorporation of Clayton      Williams Energy, Inc., filed as Exhibit 3.1 to our Form 10-Q for the      period ended September 30, 2000††                                                                                |
|     |   |                                                                                                                                                                                                                                                                                                 |
| **3.3    |   | Corporate      Bylaws of Clayton Williams Energy, Inc., as amended, filed as      Exhibit 3.1 to our Current Report on Form 8-K filed with the      Commission on March 14, 2008††                                                                                             |
|     |   |                                                                                                                                                                                                                                                                                                 |
| **4.1    |   | Indenture,      dated July 20, 2005, among Clayton Williams Energy, Inc., the Subsidiary      Guarantors and Wells Fargo Bank, National Association, as Trustee, filed      as Exhibit 4.1 to our Current Report on Form 8-K filed with the      Commission on July 22, 2005†† |
|     |   |                                                                                                                                                                                                                                                                                                 |
| *31.1    |   | Certification      by the President and Chief Executive Officer of the Company pursuant to      Rule 13a - 14(a) of the Securities Exchange Act of      1934                                                                                                                               |
|     |   |                                                                                                                                                                                                                                                                                                 |
| *31.2    |   | Certification      by the Chief Financial Officer of the Company pursuant to Rule      13a - 14(a) of the Securities Exchange Act of    1934                                                                                                                                               |
|     |   |                                                                                                                                                                                                                                                                                                 |
| ***32.1  |   | Certifications      by the Chief Executive Officer and Chief Financial Officer of the Company      pursuant to18 U.S.C. § 1350                                                                                                                                                   |

|   | * | Filed      herewith |
|--------|---|---------------------|

|   | ** | Incorporated      by reference to the filingindicated |
|--------|----|-------------------------------------------------------|

|   | *** | Furnished      herewith |
|--------|-----|-------------------------|

|   | † | Identifies      an Exhibit that consists of or includes a management contract or      compensatory plan or arrangement |
|--------|---------|------------------------------------------------------------------------------------------------------------------------|

|   | †† | Filed      under our Commission FileNo. 001-10924 |
|--------|----------------|--------------------------------------------------------|